For traders and investors, the allure of penny stocks can be great. Where else can you buy a ton of shares for not much capital outlay? For traders, this means not having to deal with hefty margin debt or cash calls, and if these lotto tickets actually take off it can be the difference between a buying a Porsche or a Hyundai for your next car.
Yet, not all penny stocks are the same. In fact, most are dangerous scams that are basically designed to take away traders’ and investors’ hard earned cash. Those that trade on the over the counter bulletin board (OTCBB) exchanges usually fit that description.
However, using the Security & Exchange Commissions (SEC) definition of penny-stocks leads to a much different grouping of companies. Under the SEC’s explanation of a penny stock, any firm trading for under $5 fits the definition. While that does include plenty of small and micro-cap firms, it also includes some very well-known names like telecom giant Sprint (S). The firm spent much of the last few years under that $5 per share barrier.
This just goes to show you that not all “penny stocks” are dangerous. They can lead to some great returns. Here are some of the penny stock success stories of the last few years. All charts created using Yahoo Finance.
Plug Power (PLUG)
Who knew that hydrogen fuel cells could be sexy? The technology—which has been around for decades— has always languished in the land of high costs and zero profitability. Those facts didn’t seem to matter for fuel cell stock Plug Power (PLUG).
Shares of PLUG have pretty much traded under $5 for much of its history and over the last 52-weeks actually sank all the down to just 26 cents a share. However, shrewd investors snapping up shares have been treated to a monster 744% gain over the last year. A series of new supply deals and a potential return to profitability has lit a fire under the penny stock. Shares of PLUG still trade for just under $5 per share – that could mean that more gains could be in store for traders (or potential losses).
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General Growth Properties (GGP)
The financial crisis was not kind to commercial real estate firms – especially those that had a hefty dose of debt. Take mall-operator General Growth Properties (GGP) for example. GGP was unable to refinance the heavy debt burden that came with its massive acquisition strategy during boom times; and as a result, GGP was forced to declare bankruptcy.
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However, this story does have a happy ending for shareholders. Unlike many bankruptcy cases—where investors get nothing—General Growth was able to work things out with its creditors and re-emerged in better financial condition. GGP stock still had plenty of value. In fact, it managed to rise from a low of just 59 cents to today’s price of $24. That’s a gain of 3,865%.
Monster Beverage Corporation (MNST)
Despite being founded in 1935, Monster Beverage (MNST)—previously known as Hansen’s Natural—spent much of its lifetime ignored and unloved. Back in 1995, you could buy shares for as little as 69 cents.
All of that changed as the energy drink and natural foods revolution took off. Monster’s products became the leading drink of choice for those seeking an extreme caffeine fix and the stock took off. After adjusting for the several share splits that MN has taken over the years, investors in MNST during the lean years would be sitting on 100,600% gains. That makes MNST one of the best performing stocks of all time.
BJ’s Restaurants (BJRI)
While it’s not as big as some of its competitors in terms of number of restaurants or establishments, BJ’s Restaurants (BJRI) has managed to turn from obscure penny stock into a big success story. Building on its initial 17 bar and grills, BJRI now operates over 151 eateries. In that time, the share price has grown as well.
Back in 1997, investors could snag shares of BJRI for less than $2. However, after Wall Street found out about the growing sales and success, shares of BJ’s have grown considerably. Since hitting a low of just 88 cents, investors in BJRI shares would have realized gains of nearly 3,900%.
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Quality Systems (QSII)
To say that Quality Systems (QSII) was ahead of its time would be an understatement. The firm was founded back in 1974 as a healthcare software and tech provider. However, that was before cost management and digital health records really became a thing. After its IPO in 1982, QSII spent much of its time trading below $1 a share.
This has all changed over the last few years, as hospitals, doctor’s offices and other medical care providers have sought the “cloud” and other tech solutions to keep costs down. QSII stock has been in the crosshairs of that revolution and investors have been rewarded – to the tune of 1,400% gains over the last few years.
The Bottom Line
Penny stocks are often maligned, as the majority of them have the possibility to go bankrupt. However, as you can see from the stories above, if you are able to invest in a stable company that other traders have not yet discovered, the returns can be astronomical. We are not advising that you start picking up penny stocks, but instead start looking under the hood to find a good investment no matter what the stock price is.